FERC Filings
Motion of EPSA for Leave to Intervene and Comment re: Devon Power LLC
Introduction
As a general matter, EPSA advocates the notion that properly organized competitive markets exert the most effective price discipline and send the most rational price signals. Imperfections in market design, including various forms of price mitigation and other artificial constraints, make markets inefficient and tend to perpetuate the need for “fixes” to overcome unintended consequences. As noted by ISO-NE in the March 1 filing, the existing New England ICAP mechanism has significant problems which lead ICAP prices to drop to zero quickly, and which do not reflect the value of reliability in constrained areas. Because of these problems, the Peaking Unit Safe Harbor (PUSH) mechanism was put in place as a temporary fix to provide generators needed for reliability, but with a capacity factor of 10 percent or less in 2002, a reasonable opportunity to recover fixed and variable costs through market bids. As reported by ISO-NE, this market design also failed to send proper price signals to value the reliability services of generators operating in constrained areas. Then, in the Commission’s April 25 order, ISO-NE was directed to establish a mechanism implementing a locational or deliverability requirement in order to reduce reliance on Reliability Must Run agreements (RMRs). The locational ICAP proposal in the March 1 filing is ISO-NE’s attempt to solve those problems, and the basic design does go a long way toward achieving that end.
It is imperative in a functional wholesale competitive market that capacity needed to ensure system reliability is properly valued and compensated, and that investment in new resources is encouraged when economically warranted. Both ISO-NE and market participants have largely agreed that a locational ICAP and downward-sloping demand curve are mechanisms that address the needs of the New England marketplace in the context of the current set of price mitigation measures and other market rules. However, the details included in the March 1 filing conflict with certain compromises discussed by parties and depart from overall locational ICAP design principles. As such, these details should be modified by the Commission if ISO-NE proposal is to be accepted.